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How’s this for a way to get funding and talent?

ladderlessladderless subscriber Posts: 3
edited April 2007 in Growth Funding
Just as a background, I`ve raised over $1 million in F+F investment, and personal and government loans (including a sweet $200,000 low interest development loan).  We just won two major industry awards, and have started shipping product to distributors who have agreed to keep inventory.  The most recent sold out of $5,000 within one month, and looks to have many times that sold within two or three months.
We could (realistically) have $50 million to $100 million in sales within three years. 
We now need our last push of money, and it`s a pain in the rear to get it in -- Suprising, given what`s happening now.
I`ve come up with an offer, and want to get some feedback.  I would like to find an experienced person to join me to help take the company to the next level.  Someone with a little money, or enough reputation that some investment money would follow.
I would like to offer a 20% equity stake (in the form of options - which eliminates tax issues).  In exchange, this person would agree to exercise (either through his/her investment, or a sponsor) $150,000 worth of this equity.  The rest of the options (approximately $450,000) would not need to be exercised until we needed additional equity capital.
Here`s where the "sweat" equity comes in -- This person would have the incentive to work to reduce the need for additional equity invest... Either by working to bring sales, or coming up with creative ways to bring additional money.  If we can get to cash positive with $150,000, then this person does VERY well... Essentially getting $450,000 in equity.
Any thoughts?


  • Options
    pixiepixie subscriber Posts: 0
    I think your idea of the partner `sweating` it out for the stake is right on track. I used the same basic construct when i wanted to move into the contact center business.
    I identified the right candidate who was allready working at the no.2 slot in a decent sized operations, bought him on board with an equity stake. The way i structured the deal was to offer him a 25% stake spread over 5 years as an earn out stake. Under the deal, every year, he gets a 5% stake of which 4% comes as sweat equity ( free) nd 1% he invests in form of cash.
    My basic principle was that the partner needed to have a `lock-in` personal investment no matter how small to get him to feel that `his` money is at stake in the venture too and as well as lock him in for a minimum of 5 years int he company so that my overall biz plan goals are being met.
    The whole thing has since then worked out beautifully. The contact center biz has allready broken even and turned a marginal net profit after the 1st 6 months of operations.
    I am subsequently now trying out the similar structure with two other gentlemen in complementing industry verticals.
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